This Graph Should Scare You

In other words, you’re not imagining it: This economic recovery has been a big disappointment relative to what the United States has usually experienced after a recession. Growth has been 9 percent below what was seen in past recoveries on average in its first three years. The CBO report tries to disentangle where that underperformance is coming from and its answer is deeply unsettling: The U.S. economy just isn’t as good at growing as it used to be.

The new CBO report claims that two-thirds of the underperformance of the economy over the past three years compared to a typical recovery is due to a slower rate of growth in potential GDP. Only one-third, in this analysis, is due to factors related to this recession.

Potential GDP is the measure of what the economy is capable of producing if almost all of the people who want jobs are able to get one and almost all its machines and buildings were humming at their potential. While it has grown consistently through modern U.S. history (we can thank a growing population and steadily improving technology for that), it doesn’t always grow at the same rate. In periods when baby boomers were reaching their working years and women were entering the workforce in large numbers, the rate at which potential GDP rose was very high, over 4 percent at times, by the CBO’s reckoning.

In recent years, though, those trends have reversed. Baby boomers are starting to retire and the proportion of women who work has leveled off.

There’s a great mashup of Napoleon and Arthur C. Clarke I saw recently that applies here:

“A sufficiently advanced incompetence is indistinguishable from malice.”

It’s hard to tell where Obama is coming from. While malice is not unlikely (Cloward-Piven would be something I would expect him to know about given his background), simple advanced incompetence cannot be ruled out.

On the subject of “working to prevent recovery”, it is amazing how we are in many ways reliving the history of the Great Depression. The Forgotten Man should be required reading for everyone in government.

Agreed. The statistics are not honest for a couple of reasons.

First of all the inflation rate is underestimated due to leaving food and fuel out of the CPI numbers. Since real GDP uses the CPI to adjust it from the nominal GDP, RGDP is probably overestimated.

Second, the abuse of the unemployment data is chicanery of the highest order. There is simply no possible way that good data can be used when they have to revise the official number up every week for almost a year.

Of course all the matters is the that the headlines look good, doesn’t matter what the revisions on page 5 say, if it even gets covered at all.

That’s pretty much where I’m coming down, and too many Republicans don’t want to admit it. Especially the clowns in DC.
But, numbers don’t lie, and unlike economists, engineers don’t let numbers lie and we don’t make simplifying assumptions... if engineers did their math the way economists did, you’d see engineering papers start out like this:
“Assume there’s no friction or gravity...”

In defense of the study of economics, engineers make many simplifying assumption. If you remember studying Newtons laws in school you might remember something like this "suppose Johnny throws a baseball at such and such and angle and speed. Calculate how far the ball will travel?" Newton's laws assume their is not air resistance. This is an obvious flaw in using this, but calculation can get immensely complex if you try to account for all variables. Do we have to account differences in humidity, temperature, atmospheric pressure, wind direction and speed, the roughness of the baseball, etc. to get an acceptable formula? Depending on the conditions, probably not.

The problem with economics, in my humble opinion, is the reliance on the work of Keynes. He theory contains many bad assumptions. The stagflation of the 1970's should not have been possible in Keyne's model. If you read the work of more conservative economist such as Walter Williams, Milton Friedman, even the old Austrians like Ludwig von Mises and Murray Rothbard do not seem to have things happen "unexpectdly" like modern Keyne's and Krugmanites do.

The reason such thinkers do not gain popularity is they have so silver bullet government cavalry rides to the rescue. The system naturally favors economist who can give the government the glory since they pay the bills both with the Fed and Universities as major employers of economist.

Yes, that’s in school... where no one is going to use the computations for real.

In the real world, after engineers are doing work where people’s lives and property depend upon the result, no, we don’t make simplifying assumptions. PE’s get brought forward on malpractice suits for making stupid computation errors and simplifying assumptions like that.

Economists make school-level simplifying assumptions when there are billions to trillions of dollars on the line... and they don’t even blink an eye.... because there’s no way to bring these clowns to account for malpractice and stupidity. Economists never suffer anything but mild reputational damages for being stupidly wrong - they’ll say something hugely stupid and then they’ll do some penance time off in the academic wilderness for a little while, and then they’re right back at it with another goddamn goofy theory or idea.

Take for example the nonsense behind the Black-Scholes theory of option pricing. The underlying equity or contract pricing doesn’t move in nice, gaussian distributions. Price movements, as Mandelbrot showed with cotton futures, have bimodal distributions which reflect the mania and panic at either end of the price movement. There’s no nice, thin, gaussian tails to the distribution. The movements 2SD (or more) removed from the mean aren’t anywhere near as rare as these Nobel-winning yahoos predict - yet all of Wall Street uses their nonsense for option pricing. When a couple of these Nobel-winning clowns went into the hedge fund business at LTCM, they plowed it straight into the ground and started the pattern of Fed-assisted (or orchestrated) bailouts, which came back to bite us (nice and hard, too) into 2008.

They should be rounded up and shipped off to forced labor camps to mine gold in their BVD’s.

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